Indian equity markets are positioning for a volatile derivatives expiry on Tuesday, as concerns over an escalation in the Iran conflict worsen sentiment and lift demand for costly hedges against market swings.
US President Donald Trump has set a Monday deadline of around 2345 GMT (0515 IST, Tuesday) for Tehran to reopen the Strait of Hormuz or face potential strikes on its power infrastructure. Iran has warned it would respond by targeting energy and water assets across the Gulf.
At-the-money options on the Nifty 50 maturing on Tuesday imply a move of more than 2 per cent, well above typical levels seen before expiry days. This signals investors are preparing for outsized swings, brokerages said.
The uncertainty extends beyond the expiry, with the Nifty volatility index surging to its highest in nearly two years.
The spike suggests that uncertainty and concerns around the Iran conflict continue to dominate market sentiment, likely keeping price swings pronounced in the near term, said Dhupesh Dhameja, derivatives research analyst at SAMCO Securities.
Iran war at the forefront
Rattled by the volley of threats between the U.S. and Iran, the Nifty 50 slumped 2.5 per cent to 22,506.40 on Monday, trading near a one-year low.
Option premiums surged, signalling fears of a further intensification in the Iran conflict.
Annualised implied volatility on options used to hedge against a further selloff on Tuesday rose to around 44 per cent–55 per cent, with out-of-the-money puts commanding higher volatility—a market structure seen during periods of high uncertainty.
The repricing of risk is further reflected in 30-day implied volatility expectations, which have nearly doubled to 19 per cent–20 per cent since the war broke out, as per LSEG data.
Overseas investors have withdrawn nearly $10 billion from Indian equities since the war started, exacerbating the selloff and further pushing up implied volatility.
Foreign investor positioning points to outright bearish bets, Sudeep Shah, head of technical and derivatives research at SBI Securities, said.
They have remained net short in index futures so far in 2026, he added.